mutual fund settlement checks

[pmacduff]

Based upon a situation a client has - I've been researching and I found an ASPPA ASAP from 2009 in reference to the treatment settlement checks. The article states that there are 3 options: reallocate pro rata to current participants with balances, reallocate per capita to participants with balances or reallocate to affected participants only. It also mentions that the $$ may be used to reduce plan fees if the Plan Doc so dictates.

The article also states that "the settlement fund proceeds should not be used to benefit employers, fiduciaries or other parties of interest, other than through the payment of reasonable plan expenses".

Here is my question: Doesn't the payment of "reasonable plan expenses" benefit the Employer? I'm trying to understand why the payment of fees would be allowed but not using the $$ as forfeiture $$ to reduce the Employer obligation.

[Lou S.]

Here is my question: Doesn't the payment of "reasonable plan expenses" benefit the Employer? I'm trying to understand why the payment of fees would be allowed but not using the $$ as forfeiture $$ to reduce the Employer obligation.

I think your problem is you are trying to apply logic to a DOL/IRS ruling.

The answer is simply because the government agency says so.

[jpod]

If the settlement is a mutual fund market-timing settlement, there is specific DOL guidance (probably what was summarized in the ASSPA article). Second, payment of reasonable expenses presupposes that the plan documents permit expenses to be paid with plan assets, and if they do that's good enough even though the employer's normal practice may be to pay the expenses with non-plan funds. DOL wasn't breaking any new ground here.

[masteff]

Here is my question: Doesn't the payment of "reasonable plan expenses" benefit the Employer? I'm trying to understand why the payment of fees would be allowed but not using the $$ as forfeiture $$ to reduce the Employer obligation.

I'd guess that permitting forfeitures to offset employer obligations is a special accomodation made to employers which recognizes that forfs originated in the plan as unvested employer contributions. Allowing forfs to offset an employer obligation is simply recycling employer contribs back into other employer contribs. It's not really a windfall to the employer because these were conditional contributions on which the participant failed to meet the condition (ie vesting). In a high-turnover industry, this provision make might the difference between a company adopting a plan or not.